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Grain Industry – Innovate and Collaborate Junee - July 2019Pat O’Shannassy - CEO
Contents
About GTA
Grains Industry Overview
Surplus & Deficits
Demand Story
Capacity
Future Trends
Collaboration to improve efficiency
Who is GTA
Grain Trading
Standards
Trade Rules &
Contracts
Dispute
Resolution
Services
Trade &
Market Access
Industry
Stewardship
& Capability
Reflect
Requirements &
capabilities in:
1. Regulation
2. Production
Sector
3. Supply Chain
4. Consumptive
Sector
Ensure
confidence in
commercial
dealings by
providing legal
rigour
Underpins
Contractual
Arrangements
Engaging with
Policy makers to
ensure fair &
equitable trade
and access to
domestic &
global markets
Leadership and
Codes of Practice
Increase Industry
capacity by
providing training
& development
programs
Industry driven and managed“Self Regulatory Framework”
GTA Core Task – Facilitation of Trade
Advocacy & Market
Access TradeCommerce
Grain Quality and
Assurance
Grain movement
& logistics
Data &
Information
Stewardship &
Capability
✓ Policy - Trade & Market Access Committee (TMAC) - Policy
✓ Market Access –TMAC & NWPGP, NTMs
✓ Market Choices Framework (PBI)
✓ Framework –IGTC (IPPC, LLP, MRLs)
✓ Operational –GPPEICC & GIMAF
✓ GTA Commerce Committee
✓ GTA Trade Rules
✓ GTA Contracts
✓ GTA Dispute Resolution Service
✓ Inventory Valuations (LDs)
✓ Operating Guidelines for Pools & Brokers/Agents
✓ GTA Trading Standards Committee
✓ GTA Code of Practice & TGDs
✓ NWPGP
✓ NRS
✓ Technical Engagement
✓ TGDs
✓ GTA Transport Ports and Storage Committee
✓ GTA Industry Working Groups
✓ Storage and Handling Agreements
✓ Transport Code of Practice and Contracts
✓ Chain of Responsibility
✓ GTA Information Technology Advisory Committee
✓ AGIC Conferences, Grain Storage Conference
✓ GTA Member Updates and Market Notifications
✓ Industry Databases
✓ Increase
Industry
capacity by
providing
vocational
training and
development
programs
✓ Diploma Grain
Management
✓ Code of
Practice
✓ COR & Training
✓ Strong
Governance
Industry driven and managed
GTA Role – Facilitation of Trade
Australian Production
Drought, but good crop in WA
2016
Key : Blue is “good” ☺ ; Red is “not good” …
2017
Key : Blue is “good” ☺ ; Red is “not good” …
2018 - Record East Coast Drought
Drought affected states:– New South Wales
(NSW)– Queensland (QLD)– Victoria (VIC)– South Australia (SA)
NSW
VIC
SA
QLD
Impact zone+
~63% of AUS crop area
9 month rainfall decile
Note: WA good crop
☺
2019
Jan-June 2019
April – June 2019
Key : Blue is “good” ☺ ; Red is “not good” …
not looking good
Bit better, but avg…
Still worrying
Looks av -better
☺
The hidden Australian grain deficit: Wheat
12
1. 2.No problem visible:
Production (blue) > Consumption (orange)
National
East Coast Consumption > Production by 100%
East Cost
The hidden Australian grain deficit: barley (Same story)
1No problem visible:
Production (blue) > Consumption
(orange)
2 East Coast Consumption >
Production
National East Coast
Why isn’t Australian Domestic demand falling?
• Reasons:1. Strong feed demand and2. Strong cattle “crush” margins3. =>Price of cattle in NSW is
almost double now compared to the last drought period.
50% Fall during last significant drought
Cattle Price
Market Driven solutions to Strong Demand
Solution 1: move grain from West to East Coast
Grain has been hipped andmoved by rail from:• Western Australia• South Australia
To:• Queensland• New South Wales• Victoria
Grain Surplus
Grain Deficit
Shipping Grain
Movement by Rail
Solution 2: Import from international markets?
Grain imports from Canada have occurred This is historically rareIncurs significant biosecurity risks & costsComplies with IPPC protocols
Due to large abandoned area from a poor winter crop,there is increased acreage available for sorghum planting.
The sorghum crop had the potential to be between 1.9 to2.5 million mt but conditions in Oct/Nov meant it did nothappen….
If the crop was large enough, it could have substituted forother grains and is likely to eliminate the need forimporting.
What does the crop size depend on? Rainfall
October rainfall: Good
December to Feb rainfall forecast : Average
It didn’t happen…. So we have another year of markettension and driving demand
Chance of above median Rainfall Dec- Feb
Sorghum Area
1 month rainfall Decile: October
Sorghum Area
Solution 3: Large sorghum summer crop
Choice & Capacity - 24 Bulk Export Ports
Ports-West & South
1- Geraldton
2- Fremantle
3- Albany
4- Esperance
5- Thevenard
6- Lincoln
7- Pirie
8- Wallaroo
9- Giles
10- Adelaide (2)
Ports- East
11- Portland
12- Geelong
13- Melbourne
14- Kembla (2)
15- Newcastle (3)
16- Brisbane (2)
17- Gladstone
18- Mackay
19- Bunbury
18mmt
9mmt
1.0 mmt
17mmt
19
1.0 mmt
1.5 mmt
1.0 mmt
Port Capacity ~ 50mmt
-
10
20
30
40
50
Aust
Prod
Xpt
Dom
0
5
10
15
Prod Xpt Dom
kmt
0
5
10
Prod Xpt Dom
kmt
0
5
10
15
20
Pro
d
Xp
t
Do
m
kmt
Site and Rail Network
Storage
Rationalisation of receival sites
On-farm grows
Private Storage may be underestimated
Supply Chain Costs
-
5
10
15
20
25
30
35
40
45
Mill
ion
s
Australian Exports to (All) by Commodity
Wheat
Sorghum
Oats
Lupins
Field Peas
Chickpeas
Canola
Barley
Source: ABS
Australian Grain Exports
Where does it go?
Source: ABS
Where does it depart from
Source: ABS
Container Growth
Competitive freight to reposition boxes
Lower entry cost
Lower working capital cost
Logistics at destination
Shipping line consolidationSource: ABS
Container Exports – A Vic / NSW Game
Source: ABS
Export Capacity
Source: ABS, pers comm
It’s all about utilisation!
AEGIC – Australia’s Grain Supply Chains
AEGIC – Australia’s Grain Supply Chain Report
SA is a little tighter
AEGIC – Australia’s Grain Supply Chain Report
WA – consistent & simple pathway
AEGIC – Australia’s Grain Supply Chain Report
Domestic Demand Grows
Increase in domestic demand
EC driven
Strong livestock prices
Biggest gain in wheat
Source: ABARES
Demand for Food - Security and safety
SEA Demand Story
Doubling Production, but
Massive Imports
6 x in corn, 2.5 x wheat
Consumption doubled!
Feed doesn’t = failure!
Policy & Market Access
Source: USDA
Asian Consumption Driving Demand
Asian consumption will drive long-term import demand for Aust grain, particularly the rise of animal meat driving demand for feed grains
• Source: CBH Analysis. Consumption growth of wheat, barley, corn, sorghum, soybeans, canola and other oilseeds in country not import growth
75
175
0
25
150
50
100
125
2030f
55%
1990 2000
13%
2010
5%
27%
2020f
+3%
Pork Poultry Beef Lamb
Asian Grain Consumption Growth (ALL GRAINS & OILSEEDS, MILLION TONNES, ASIA)
Asian Meat Consumption Growth (MEAT CONSUMPTION, MILLION TONNES, ASIA)
200
400
600
800
1,000
1,200
1,400
2020f1990 2000 2010 2030f
54%
35%
49%
+3%
Feed Grain Food Grain
Food
Feed
Supply from the Black Sea has increased rapidly…
Source: Bloomberg, CME, USDA, CBH Analysis
Black Sea Exports (ALL GRAINS, MILLION TONNES)
Real Global Prices(INDEXED REAL PRICES)
……with long term real global prices reverting to the mean and set to remain flat …
… so what?
100
0
50
150
1998 20181988 2008 2028F
0
50
100
150
2030F2020F201020001990
Indexed real wheat price
Long term pricing
Black Sea Supply Grows – Pressure Price & Returns
36
Reduced Margins in the Grain Value
Chain and therefore
pressure on cost.
Australian wheat delivered to South East Asia is more expensive than Black Sea wheat, but benefits from a slight quality premium. High Cost base up to $65-75/t higher than Black SeaIt is critical to reduce costs to compete in the long term – both supply chain and production.
Wheat delivered to South East Asia (A$/t)
Paddock costs include fertiliser, chemicals, fuel, repair & maintenance and other costs associated with production and overhead costs (Government subsidies excluded).
Source: CBH analysis
Russia
88
129
179
Krasn.(Russia)
121
127
Argentina
147
SA
107
189
99
199
119
117
East Aust.
94
United StatesCanada
Wheat exports into contestable market (Mt)
138
198
104
200
168
233 240 248267
306
337
366
101
Ukraine WA
226
Del
iver
ed c
ost
($
/ tonn
e)
Delivered Costs
Supply chain
Paddock
Supply Side – Cost Competitiveness
37
Extended Black Sea exports narrowing the shipping window
Capacity aiming to capture the peak demand period.
Eastern Australia has invested heavily in port access
Shipping Window – Capacity needed to capture premiums
38
Shipping Comparison
2.0
0.0
1.0
3.0
4.0
6.0
5.0
7.0
8.0
May AugJan Feb Mar Apr OctJun Jul Sep Nov Dec
Black Sea Australia
Australian shipping window
Black Sea Harvest Aus. Harvest
Average monthly exports last 5 years (Mt to FY18)
Tonn
es (m
illion
s)
Source: CBH
Excess Capacity exists on East Coast
AEGIC – Australia’s Grain Supply Chains
Excess in Bulk has been exacerbated by a growth in Containers
Trends and Future
Sector
Grain storage • More investment in on-farm storage, particularly in eastern Australia
• Further rationalisation of the ‘central storage network’
Port Terminal operations
• Growth in Container exports • Initial investment in Ports - QBT, NAT, Quattro, MPT, Lucky Bay,
Bunge • Greater use of low-cost mobile ship loaders
Road transport • Increased share of the grain freight task• More specialised PBS vehicles campaign moving grain from sites
to port/endusers• No electric trucks …..not yet
Rail transport • More closure of regional branchlines• Who can manage the Risk?
Shipping • Further innovation in shipping and support services• Innovation in engines/fuel types to address emission issues• Technology to play a leading role in managing vessel
performance and cargo management systems
Supply Chain Management Systems
• Blockchain, IoT and AI
Future Supply Chain Innovations
43
Automation could look like:
driverless chaser bins that deliver grain from farmers’
fields to on-farm storage or grain trucks;
autonomous cartage of grain from upcountry to adjacent rail loading facilities;
grain rail wagons that automatically load and unload;
driverless shuttle trains;
greater automation of grain receival and grain
quality assessment; and
more automated grain port operations.
Traditional innovations such as more fuel-efficient, safer trucks & locomotives will continue to underpin the cost efficiency of supply chains.
Grain Storage
44
Background / History:
40 years of growth
Accelerated growth in last 10 years
2018 – estimate = 17 to 18 MMT
37% of Annual Production
• Canada - 105%
Est. Annual increase?
• 1.0 – 2.0 MT per annum.
925
619536
0
100
200
300
400
500
600
700
800
900
1000
1998 2010 2017
Receival Sites
Sites
Grain Storage
45
Growth Drivers:Harvest Efficiency
Reduced transport cost
Quick turn around
Around the clock operations
Quickly deal with “out of spec”
Direct to End User DeliveryContingent on local markets
Allocate handling and warehousing costs to the on farm investment
Marketing/Price OptimizationA small percentage of On Farm Stored Grain
Timing
Grain Storage
The Future:
Underlying drivers continue
Harvesting is getting faster
Local consumption increasing
Farming units growing
Local Rationalisation
47
On-farm storage is growing in many shapes and sizes..
48
49
50
51
300KT OF BULK BARLEY LOADED VIA PORTABLE LOADER 2017
Port Terminal Operations
Road Transport
• Background– Grain industry supported
by small regional carriers
– Growth of the ‘farm fleet’
– Low barriers of entry
• Downward pressure on freight rates
• Uneconomic returns for carriers in general
Road Transport
• The Future
– Innovation in:• PBS Vehicles
• Electric Trucks
• Autonomous trucks
– Working in with Rail • Hub and Spoke sites
Rail Transport
Coal Grain*
Annual production 448mt 42mt
Annual domestic consumption 66mt 12mt
Annual export 382mt 30mt
Annual export value $54b $11b
Export tonne KM (b) (est.) 81.4 7.0
Mines/farms 110 23,000
Number of terminals 10 21
Average tonnes per terminal 42.0mtpa 1.4mtpa
Number of load-points (est.) 101 ~450
Average tonnes per load-point (000)
4,435 80
Sources/Notes:
*includes Grains, Oilseeds and PulsesCoal Production, Exports (and assumed) Domestic Consumption and
(FY2018): Office of Chief Economist (OCE) Resources and Energy Quarterly December 2018. Export Revenue (FY2018): Sourced from ABS, Customised Report. Coal Mines: Geoscience Australia. Grain Production, Domestic
Consumption (and assumed) Domestic Consumption, Export Revenue
(FY2018): ABARES Agricultural Commodities (March 2019). Grain Farms: ABARES website (Grain Overview), includes farms with at least 40 hectares sown to grains, oilseeds or pulses.
OBSERVATIONS
• SCALE!!
• History of rail / grain driven by regulated past
• Grain is cyclical and has peaked demand
• Multiple clients focussed on commodity trading -no consistency of demand for rail transport
• In summary, grain delivers a lack of scale and consistent demand
Rail Operators
BHCs
Exporters
Governments
The Relationships & Challenge – BULK
• In the regulated market the rail operator wore most of the risk.
• Post deregulation Rail Operators became Wholesalers using Take or Pay arrangements
• BHCs became the retailer and shared the risk / reward
• Repetitive droughts and competition = uncertainty of the future
• Exporters are extremely wary of S/C risk in Bulk
• Frustration with lack of coordination between track owners & operators.
• Disaggregated market and supply chain eroding S/C scale – Insular arrangements
•Unlikely to see continued govt support for tracks in the majority of regions
Rail Transport
The Future – Innovate, Collaborate and Grow
1. Potential to concentrate the task and investment in areas with another purpose; coal, interstate, and passenger.
2. Can a Collaborative approach to the Supply Chaingenerate support for increased rail usage?
a) Need to link farm, BHCs and smaller storage sites to major rail loading points to generate scale
b) Creates winners and losers
3. Requires open and honest discussion and access to analytical data and modelling expertise (CSIRO)
4. Requires cross-industry collaboration at a strategic level – STILL REQUIRES SOMEONE TO HOLD THE RISK
Rail Transport
Competitive Advantage: An efficient integrated value chain can be a key to gaining and maintaining competitive advantage and boosting profitability.
Collaboration can provide:
better visibility and support efficient planning and scheduling;
Improve inventory management and lower levels of stock;
Opportunities to lower costs
Better utilisation of key assets, and
Improved decision making and S&OP
Value in Collaboration
The Journey from Silo based Supply Chains to a collaborative model requires time and trust to develop
1) Closed Silo Supply Chains
Price based
Adversarial Relationships
Duplication
Cost & Chaos
2) Cooperation/Coordination
Less duplication
Better asset use
Cost & Chaos are reduced
3) Collaboration
Joint Planning
Asset sharing
Technology Sharing
Degrees of Collaboration
The Australian Supply Chain has many examples of past/current Collaboration:
1. Common ownership within Storage
2. Track Trading
3. Industry Codes of Practice
4. Grain Trading Standards
5. Port capacity management
6. Sharing of fixed cost rail contracts
7. Road fleet utilisation – Matching capacity to high level demand
8. NGR
And of course GTA and other industry associations and government departments
Examples of Existing Collaboration in Grain
Questions..?
Surety
Reliability
Reputation
Confidence
Customer Value
Tonnes Transacted
E: [email protected]: www.graintrade.org.au
Thank you!!!